Underfunded State Retirement Systems and the Roads to Reform

The Trillion Dollar Gap

West Virginia
wEST VIRGINIA’s management of its long-term pension liability is cause for serious concern and it needs to improve how it handles its retiree health care and other benefit obligations. The Mountain State has funded only 64 percent of its total pension bill—well below the 80 percent benchmark that the U.S. Government Accountability Office says is preferred by experts. The total unfunded pension liability—nearly $5 billion—is almost twice the size of the payroll of plan members. To its credit, West Virginia has significantly improved the health of its system since the low point of 2003, when only 39 percent of the liability was funded. Since 2000, the state has exceeded its actuarially required contributions in all but two years. West Virginia is one of only three states (along with Idaho and Oregon) in which pension assets reflect the market value—meaning that these states do not average gains and losses over a set period of time. Meanwhile, West Virginia has set aside 4 percent of the funds required to cover its $6.4 billion long-term liability for retiree health care and other benefits.

PENSIONS, 1999 2008
West Virginia’s pension liabilities grew 76 percent between 1999 and 2008—outpaced by assets, which grew 144 percent.

Retiree health care and other bene ts are 32 percent of West Virginia’s total retirement bill but are 55 percent of the state’s retirement funding shortfall.

2008 liabilities $13.64 billion 2008 assets $8.67 billion

$254.24 million




West Virginia’s health care and other post-employment bene t programs are 4.00% funded.

$6.11 billion

45.92% funded
0 1999 2000 2001 2002 2003 2004 2005

63.58% funded
2006 2007 2008 Total Bill Coming Due: Portion Unfunded: Annual Required Contribution (ARC): Percentage ARC Funded: $6,362,640 $6,108,398 $174,842 82.12%
Note: In thousands

Total Bill Coming Due: Portion Unfunded: Annual Required Contribution (ARC): Percentage ARC Funded:

$13,642,584 $4,968,709 $481,703 105.93%
Note: In thousands

Solid performer

Needs improvement Serious concerns



Our grades assess states on how well they manage their retirement obligations. Each state can earn up to four points for its pension plans: two points for a funding ratio of at least 80 percent; one for an unfunded liability below covered payroll; and one for paying an average of at least 90 percent of the ARC during the past five years. Solid Performer = 4 points. Needs Improvement = 2–3 points. Serious Concerns = 0–1 points. Grading for health care and other benefits is simpler because most states have only recently begun to fund and collect data on these liabilities. States are solid performers if they have set aside assets equal to at least 7.1 percent of their liabilities (the 50-state average), or they need improvement if they have contributed less. For more details, read the full report at www.pewcenteronthestates.org/TrillionDollarGap.

The Pew Center on the States is a division of The Pew Charitable Trusts that identifies and advances effective solutions to critical issues facing states. Pew is a nonprofit organization that applies a rigorous, analytical approach to improve public policy, inform the public and stimulate civic life. 901 E Street NW | 10th Floor | Washington, DC 20004 | www.pewcenteronthestates.org